After trading inside a rising channel for a couple of months, GBPCAD made a strong forex breakout to the downside, indicating that a selloff is likely. Price has broken below the 1.8000 major psychological support and is stalling around the 1.7900 handle.
Stochastic is indicating oversold conditions, which means that a bounce might take place. This could be in the form of a retracement back to the channel support at 1.8000 before the pair resume its drop to the previous lows or on to create new lows.
Forex Breakout Scenarios
Waiting for a pullback to the 1.8000 handle might be a better price to enter later on, as traders might take profits off their forex breakout short trades before the end of the week. This could lead to a bounce and correction to the broken channel bottom.
Another potential entry point is a break below the recent lows at 1.7900 and aiming for new ones around the 1.7750-1.7800 levels. Fundamentals support a short bias, as the UK has been printing weaker than expected reports while data from Canada has mostly been stronger than expected so far. Apart from that, the BOE recently shifted to a less upbeat stance, citing fears of a euro zone recession, while the BOC has been surprisingly positive in its inflation assessment.
Event risks for this forex breakout trade today include the release of UK Nationwide HPI, although this might just spark short-term volatility rather than an actual directional move. A 0.4% rebound is expected, which might be enough to give a bit of support for GBPCAD for the time being. There are no major reports lined up from Canada today.
A rally past the 1.8000 handle though and return back to the channel might be a sign that the forex breakout move was a fake one and that the recent uptrend is likely to carry on.
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